The UK housing market needs Help to Supply – not Help to Buy

Graeme Leach is chief executive and chief economist of Macronomics, a macroeconomic, geopolitical and future megatrends research consultancy.

Graeme Leach

A lack of supply has distorted our housing market

THE UK housing market needs Help to Supply, not Help to Buy. The government’s housing scheme has helped first-time buyers get a leg-up onto the property ladder, but that privilege has come at a price – with house prices higher than otherwise, as the subsidy became capitalised in prices.

The planning system has created a grossly distorted market. And if you increase demand against a backdrop of very limited supply (of land to build on), prices will go up. The ultimate cause of our housing problem lies with the planning system and the price of land. Since the mid-1950s, we’ve transformed land from being in available supply, to being a very scarce resource.

Agricultural land in the south east of England can sell for less than £10,000 per acre. The same plot of land with housing consent can sell for more than a £1m. State planning has helped create a 100 fold multiple in the price of land for housing, versus agricultural use.

So on top of a state created problem (the impact of the planning system on supply), we have imposed a “statist” solution (stimulating demand through Help to Buy). Should we laugh or cry?

Over the past 20 years, on my estimates, actual building has fallen short of what was necessary, by around 2m properties. This is economic madness – and the problem is about to get worse, because the UK population is rising towards 80m, heavily concentrated in the south east. We need far more houses, and if those houses are to be built, much more land will need to be released. We already have the smallest, most expensive and densely populated housing stock in Europe. Without reform, we are resigning ourselves to making a bad situation much worse.

Surely the obvious way to help first-time buyers is to make housing cheaper rather than more expensive. When 30 to 40 per cent of a house price can be the land on which it’s built, markedly increasing land supply – thus reducing its price – could have a real impact. Politically, of course, this is a huge challenge – pitting sons and daughters who want to buy against home-owning mums and dads, who fear their property falling in value.

The second riposte is that reform will see developers concreting over the country. This is rubbish. Around 90 per cent of the population lives on 9 per cent of the land – and half of the built up areas are gardens. There’s plenty of land out there.

Paul Cheshire, emeritus professor at the LSE, has shown how building on greenbelt would only have to be very modest in order to provide more than enough land for housing for generations to come. Greenbelt is not always a “green and pleasant land” – parts of it are even “grotty”. Greenbelt really only provides value for those living within it, and all too often it doesn’t provide an amenity value to those outside – when used for intensive farming and/or lacking viable rights of way. Cheshire describes the greenbelt as “a very British form of discriminatory zoning, keeping the urban unwashed out of the Home Counties, and of course helping turn houses into investment assets instead of places to live.” Enough said.

Graeme Leach is director of economics & prosperity studies at the Legatum Institute.